Staking is an important concept in cryptocurrency. Staking happens as a result of investing the cryptocurrencies you own to gain more. The process of investment in staking is called vesting or locking down the cryptocurrencies. These vested tokens support the workings of the concerned blockchain and enhance its security.
The staker will be rewarded with staking incentives in the form of native tokens of the concerned blockchain project. Staking is also a process that validates and verifies the transactions in the concerned token. Unlike crypto mining, staking is a much easier process.
The process of enabling crypto staking involves a few steps. First of all, you have to select a token that supports staking. Then purchase this cryptocurrency from a trustworthy cryptocurrency exchange. Then select a type of staking from the list mentioned in the following section. Now you can directly stake the cryptocurrency after setting up the cryptocurrency wallet.
Types Of Crypto Staking
There are types of crypto staking based on how they are done, the underlying mechanism, the level of participant involvement in the validation, or rewards.
- Active Staking: In active staking, staking is done with the intention of active participation in the transaction validation and the creation of new blocks. Participants in active staking are rewarded with the highest returns.
- Passive Staking: Passive staking staking intended to keep your blockchain network secure. Passive staking yields lower rewards to the stakers.
- Delegated Staking: Delegated staking happens when you delegate your staking power to a node. The node validates the transactions using this power and keeps the blockchain network safe. Delegated staking is the best staking method for beginners in the crypto industry.
- Direct Staking: You are an active participant in all the transactions involved such as locking up your assets in a crypto wallet and running a full node. This type of staking is beneficial for active, experienced traders.
- Pool Staking: In pool staking, you join a pool of token holders who jointly contribute their resources. Pool staking provides increased chances of earning rewards, and/or getting around the high minimum requirements for staking.
- Exchange Staking: The exchange platforms allow the staking of various cryptocurrencies directly on the exchange. The exchanges handle the validation process and distribution of the staking rewards.
- Liquid Staking: In liquid staking, the staking of a particular token is done without affecting its liquidity in the market.
- Custodial and Non-custodial Staking: Custodial staking involves transferring the assets to a particular platform whereas non-custodial staking involves participants keeping their staked wallets in their own wallets.
Benefits Of Crypto Staking
Crypto staking is a favorite method of earning for cryptocurrency users. It is the right method to help the users earn a passive income in the form of staking rewards. By participating in staking, you are becoming part of enhancing the security and efficiency of blockchain networks.
Compared to other cryptocurrency investment methods, staking is much easier and less labor-intensive. Once you have staked the assets, you will automatically get the staking rewards for the stipulated period. Unlike mining, staking is less resource-intensive and risky as mining involves the use of machinery and solving complex mathematical equations.
Risks Associated With Crypto Staking
The general volatility of cryptocurrencies will affect the price of the staked currencies. If the cryptocurrency you staked has lost its price, you will also encounter a loss in the amount of staking rewards as the staking rewards are also awarded in the same currency. If you act as a validator in the staking process, you will be more responsible and will have to deal with the associated risks. The liquidity issues due to lock-up periods where the tokens are not available for trade also pose problems for its users.
The Bottom Line
Cryptocurrency staking is a basic feature you should be aware of if you intend to invest in this field. It is the best means of earning cryptocurrencies without getting involved in complex processes like trading or mining. While staking helps the concerned protocol to keep up its validity and security, the stakers earn a passive income in terms of staking rewards. Therefore, you must understand staking and get involved in it.
